Looming Inflation Data May Lead To Choppy Trading On Wall Street

The major U.S. index futures are currently pointing to a roughly flat open on Wednesday, with stocks likely to show a lack of direction following the mixed performance seen in the previous session.

Traders may be reluctant to make significant moves as they look ahead to the release of key U.S. inflation data in the comings days.

The Labor Department’s reports on consumer and producer price inflation, which are due to be released on Thursday and Friday, respectively, could have a significant impact on the outlook for interest rates.

With economists expecting the reports to show slowdowns in the annual rate of core price growth, the data could bolster optimism about near-term rate cuts by the Federal Reserve.

However, if the data surprises to the episode, it could add to recent skepticism about whether the Fed will begin cutting rates in March.

Later in the day, trading could be impacted by reaction to the results of the Treasury Department’s auction of $37 billion worth of ten-year notes.

The results of the auction could affect treasury yields, which have recently been a key driver of trading on Wall Street. The ten-year yield is moving moderately lower ahead of the release of the auction results.

Stocks moved mostly lower in early trading on Tuesday but regained ground over the course of the session. The major averages climbed well off their worst levels of the day, with the tech-heavy Nasdaq peeking above the unchanged line.

The major averages finished the day mixed. While the Nasdaq inched up 13.94 points or 0.1 percent to 14,857.71, the S&P 500 edged down 7.04 points or 0.2 percent to 4,756.50 and the Dow fell 157.85 points or 0.4 percent to 37,525.16.

The early weakness on Wall Street came as some traders looked to cash in on Monday’s strong gains amid lingering uncertainty about the outlook for interest rates.

While the Federal Reserve is widely expected to leave interest rates unchanged later this month, traders have recently become increasingly skeptical about whether the central bank will cut rates in March.

CME Group’s FedWatch Tool still indicates a 60.9 percent chance the Fed will lower rates by a quarter point in March, but that figure is well below recent highs.

Selling pressure waned over the course of the session, however, as traders seemed reluctant to make move significant bets ahead of the release of key inflation data later this week.

On the U.S. economic front, the Commerce Department released a report showing the U.S. trade deficit unexpectedly shrank in the month of November.

The report said the trade deficit narrowed to $63.2 billion in November from a revised $64.5 billion in October. Economists had expected the trade deficit to widen to $65.0 billion from the $64.3 billion originally reported for the previous month.

The unexpectedly smaller trade deficit came as the value of imports tumbled by 1.9 percent to $316.9 billion, while the value of export slumped by 1.9 percent to $253.7 billion.

Despite the recovery attempt by the broader markets, tobacco stocks continued to see substantial weakness on the day, with the NYSE Arca Tobacco Index plunging by 3.7 percent.

Significant weakness also remained visible among oil service stocks, as reflected by the 2.4 percent slump by the Philadelphia Oil Service Index. The weakness in the sector came despite a rebound by the price of crude oil.

Steel stocks also continued to see considerable weakness on the day, moving notably lower along with airline, brokerage and gold stocks.

On the other hand, networking stocks showed a strong move to the upside, driving the NYSE Arca Networking Index up by 1.1 percent.

Juniper Networks (JNPR) led the sector higher, soaring by 21.8 percent after a report from the Wall Street Journal said Hewlett Packard Enterprise (HPE) is in advanced talks to buy the company for about $13 billion.

Commodity, Currency Markets

Crude oil futures are climbing $0.79 to $73.03 a barrel after jumping $1.47 to $72.24 a barrel on Tuesday. Meanwhile, an ounce of gold is trading at $2,037.60, up $4.60 compared to the previous session’s close of $2,033. On Tuesday, gold edged down $0.50.

On the currency front, the U.S. dollar is trading at 145.15 yen compared to the 144.48 yen it fetched at the close of New York trading on Tuesday. Against the euro, the dollar is trading at $1.0949 compared to yesterday’s $1.0931.

Asia

Asian stocks ended mostly lower on Wednesday as investors looked ahead to the release of U.S. inflation data as well as inflation and trade figures from China this week for additional clues on the economic outlook and the likelihood of early interest rate cuts. Traders also awaited fourth-quarter earnings from large U.S. banks for directional cues.

The dollar held steady in cautious trading ahead of the release of U.S. CPI and PPI data, while bitcoin rebounded after a plunge triggered by the U.S. Securities and Exchange Commission’s statement that it hadn’t yet granted approval of spot-Bitcoin exchange traded funds. Oil steadied after climbing over 2 percent Tuesday on signs of falling U.S. stockpiles.

China’s Shanghai Composite Index dropped 0.5 percent to 2,877.70, lingering around multi-year lows in the absence of major catalysts and uncertainty surrounding the upcoming Taiwan election.

Hong Kong’s Hang Seng Index ended down 0.6 percent at 16,097.28, extending losses for a seventh consecutive session.

Japanese markets bucked the weak regional trend to end sharply higher as recent data showing declines in Japanese inflation and wage growth bolstered bets on a dovish BOJ.

The Nikkei 225 Index jumped 2.0 percent to 34,441.72, touching its highest level in 34 years, led by exporters and technology stocks. The broader Topix Index settled 1.3 percent higher at 2,444.48, its highest since March 1990.

Uniqlo-brand clothing retail chain operator Fast Retailing soared 3.9 ahead of its first-quarter results due on Thursday. The yen extended declines as data showed wage growth for Japanese workers slowed sharply in November.

Seoul stocks fell notably ahead of the Bank of Korea’s rate decision on Thursday, with no changes in rates expected. The Kospi slid 0.8 percent to 2,541.98, extending losses for the sixth consecutive session.

Market bellwether Samsung Electronics declined 1.5 percent and No. 2 chipmaker SK Hynix lost 2.8 percent. Battery maker LG Energy Solution shed 1.7 percent and its smaller rival Samsung SDI tumbled 3.6 percent.

Australian markets ended lower, dragged down by miners as iron ore futures extended losses for the fifth straight session.

Earlier today, data showed annual inflation sank to a near two-year low of 4.3 percent in November, easing pressure on the RBA to hike rates at its February meeting.

The benchmark S&P ASX 200 Index fell 0.7 percent to 7,468.50, while the broader All Ordinaries Index ended down 0.6 percent at 7,702.70.

Across the Tasman, New Zealand’s benchmark S&P NZX-50 Index settled 0.6 percent lower at 11,769.40.

Europe

European shares are little changed on Wednesday as investors await U.S. consumer and producer price inflation data this week for additional clues on the Fed’s rate trajectory.

Growth worries have weighed on the markets after European Central Bank Vice President Luis de Guindos said the euro zone is facing weak growth and a possible recession.

De Guindos said that economic weakness was broad-based, with construction and manufacturing hit particularly hard and services likely to follow in the coming months.

French industrial output rebounded in November, offering some bright news. Data released earlier today showed French industrial production rose 0.5 percent from the month before in November.

While the German DAX Index is up by 0.1 percent, the French CAC 40 Index is just below the unchanged line and the U.K.’s FTSE 100 Index is down by 0.2 percent.

J Sainsbury shares have slumped. The British supermarket chain revealed a strong Christmas sales performance for groceries but falls in non-food categories.

Meanwhile, Dutch chip-making equipment manufacturer ASML has risen after TSMC, the world’s largest contract chipmaker, posted quarterly revenue that beat expectations.

Baker and food-to-go company Greggs has moved sharply higher after reporting strong year-end sales.

Hunting has also jumped. The precision engineering group confirmed its 2023 financial performance aligns with previous guidance and market expectations.

U.S. Economic Reports

The Commerce Department is due to release its report on wholesale inventories in the month of November at 10 am ET. Wholesale inventories are expected to dip by 0.2 percent.

At 10:30 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended January 5th.

Crude oil inventories are expected to slip by 0.7 million barrels after slumping by 5.5 million barrels in the previous week.

At 1 pm ET, the Treasury Department is due to announce the results of this month’s auction of $37 billion worth of ten-year notes.

New York Federal Reserve President John Williams is scheduled to make keynote remarks at “2024 Economic Outlook with New York Fed President John C. Williams” at 3:15 pm ET.

Stocks In Focus

Shares of TG Therapeutics (TGTX) are moving sharply higher in pre-market trading after the biopharmaceutical company provided upbeat net product revenue for the its multiple sclerosis treatment.

Medical device maker Intuitive Surgical (ISRG) is also likely to see initial strength after reporting preliminary fourth quarter revenue above analyst estimates.

On the other hand, shares of Etsy (ETSY) may move to the downside after Goldman Sachs downgraded its rating on the company’s stock to Neutral from Buy.